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NBU November 2020 Inflation Update

NBU November 2020 Inflation Update

In November 2020, consumer inflation accelerated in annual terms to 3.8%, up from 2.6% in October. In monthly terms, prices grew by 1.3%. This is according to data released by the State Statistics Service of Ukraine.

Actual consumer inflation went above the projected trajectory published in the NBU’s October 2020 Inflation Report. The acceleration was driven by higher energy prices, worse crop yields, the weakening of the hryvnia in previous months, and higher production costs. The fall in consumer demand for certain services and nonfood products, including clothing and footwear, curbed inflationary pressures somewhat.

  • Core inflation accelerated to 3.9% yoy (up from 3.2% yoy in October).

The growth in food prices that are included in core inflation accelerated (to 4.4% yoy). Rising global prices for edible oils and lower sunflower yields in Ukraine led to a rise in the price of sunflower oil. This also drove prices for sunflower oil products (mayonnaise, margarine, spreads) higher. Higher prices for raw materials and energy, as well as the pass-through effects of a weaker hryvnia, accelerated the rise in prices for pasta and flour products. Fish, nonalcoholic beverages, and spices became more expensive, while the fall in prices for dried fruits decelerated. Higher production costs also affected prices for meat products, butter, and dairy products. Meanwhile, ample supply of imported cheese weighed down the rise in cheese prices.

Nonfood products also rose in price at a higher rate (1.2% yoy). This was due to both strong consumer demand and the pass-through of a weaker hryvnia into prices. In particular, home appliances, furniture, and pharmaceutical products became more expensive at a faster pace. In addition, prices for electronic devices fell more slowly. Meantime, clothing and footwear continued to become cheaper. This can be attributed to changes in households’ consumer behavior due to opportunities for remote work and study. The growth in service prices picked up (to 6.5% yoy). The strengthening of quarantine measures and the introduction of the weekend quarantine had a multifaceted impact on the dynamics of service prices. The decrease in the number of customers amid rising production costs led to a further increase in prices for the services of beauty salons and notaries, and prices for driving lessons. The further spread of COVID-19 spurred the growth in prices for consultative medical services and health insurance. On the other hand, the prohibition to work on weekends weighed down the rise in prices for services of public catering establishments, hotels, and cinemas amid weak demand.

  • Raw food prices returned to growth (up 1.0% yoy).

Sugar, flour, and cereals became more expensive, primarily due to poorer yields of sugar beets and cereals. The fall in prices for greenhouse vegetables, in particular tomatoes, cucumbers, zucchini, and eggplants, decelerated due to lower domestic supply and the arrival of more expensive imported products. Meanwhile, prices for borsch vegetables remained far below last year’s levels. Supplies from the new harvest, primarily apples, slowed the growth in fruit prices.

  • The growth in administered prices accelerated noticeably, to 9.2% yoy. Higher global energy prices were reflected in domestic prices for natural gas. This also slowed the decline in prices for hot water supplies and heating.
  • The growth in fuel prices decelerated (to 13.8% yoy) due to rising global oil prices and elevated demand from the population.

In November, headline consumer inflation accelerated and approached the lower bound of the 5%+/-1 pp target range. With the comparison base being low, inflation is expected to accelerate in December too, entering the target range.

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